Tag Archives: TARGET2

The Tin Ear of Dr Sinn

One of the great masterpieces of world literature is Gunther Grass’ The Tin Drum, cataloging how Germany fell into the abyss of madness. The eponymous drum is pounded upon by Oskar, who survives the horrors of war and gains fame only eventually to be consigned to a secure institution. Its as much a discussion of the perils of taking oneself too seriously as it is on the perils of taking others so. Modern Germans labour, unfairly it may be, under the yoke of the dreadful history of their great grandparents. And yet, outside Germany we are often more reluctant than perhaps is helpful to accept that that is part of their (and our) shared history and that the context therefore is unavoidable. We are all too much at times like the Noel Coward song…Here in Ireland we are all too aware of the context of the past, and while at times it can be a massive evasion “blame the brits” sort of awareness, it at least exists. Its not therefore too much to suggest that others might want to cultivate this awareness in their speech.

Dr Hans Werner Sinn has waged an increasingly lonely campaign to convince anyone, everyone, that Germany stands in massive danger, that German capital is being starved and German money sucked to the periphery through the Target 2 interbank settlement system. Despite devastating critiques of this view by amongst others Karl Whelan Dr Sinn holds fast to the notion that it’s a massive danger. It’s not, unless and until the euro zone breaks up and even then it’s much more an accounting exercise than a real issue. As head of the ifo , the major german economic think tank, Sinn is a major player in the German economic and political sphere. Topflight german magazine Der Speigel has a fantastic takedown of Dr Sinn, which portrays him as an intellectual bully, a man possessed of absolute certainty (in a world where most economists have at least rid themselves of that) and obsessed with publicity and the media, a man whose views have remained slow to evolve.

Yet, he remains a most influential man. And bearing his media savvy and his acknowledged influence in that regard one of his statements quoted in Der Speigel makes one wonder. He has long regarded the bailouts of the periphery as dangerous. He now states “Our children will be forced to go to southern Europe and get our money back” . This is to my mind and ear inflammatory stuff, by a man who knows or perhaps now we see does not but should know his history and his geopolitics. At best its crass bluster, at worst can be read as a oblique reminder of the invasion and occupation of Greece and  Italy in WW2. One hopes that this time the children of Germany will be armed with lawyers writs and bond calculators.  It is similar to the head of the ESRI musing on the usefulness of ANFO in bond negotiations when in the financial district of London (riffing on the IRA Bishopsgate and Canary Wharf bombings) . The euro crisis has done enough harm to intra-euro national solidarity. People of influence should know enough to not fuel this any further. Its a pity that the certainties of Dr Sinn do not extend to a knowledge of the past context and present realities.

Understanding Central Banks….

The crisis has shown us that the role of the Central Bank has rarely been more central to global economic welfare. Calls for more, or less, or faster or slower money growth, for new rounds of quantitative easing, for enhancement of the role of Central Banks as lenders of last resort (but to whom?), discussions on the desirable or undesirable role of inflation…. In this context it is essential for any business to understand what a central bank does and does not do.

Taught by Professor Karl Whelan, who has over a decade worth of experience as a central banker in the Federal Reserve and in the Central Bank of Ireland, this course delivered by my Campus Company will  examine among other issues

  • If and if so how central banks influence interest rates and the money supply.
  • Lender of last resort operations and banking regulation
  • Quantitative easing
  • How major central banks are structured, their legal limits and how they communicate (and how to decipher this)
  • Liquidity traps
  • Sovereign debt and central banks.
  • MMT (Modern monetary theory).
  • Credit risk in the Eurosystem of central banks and the correct interpretation of movements in payment systems and TARGET2.
  • The euro area crisis and scenarios for a euro break-up.

Coming when the global cental banking debate intersects with the role of the ECB/Central Bank of Ireland on the issue of the Anglo Irish Bank Promissory Notes, this course should enlighten and provide business context to these issues.

      Karl presented a discussion on exceptional liquidity provisions by the Central Bank of Ireland on Friday 27 January. His slides are